Northern Rock has been dropped from the FTSE 100 index of leading UK blue chips, in the biggest shake-up of the index since the dotcom crash in 2001.

Trading at £12 at the start of the year, the stricken lender's shares are now below 100p after the credit crunch flattened its business model.

The demotion was confirmed by the FTSE Committee in its latest quarterly reshuffle of the benchmark index.

Seven firms in total were booted from the FTSE 100 index.

The reshuffle reflects the magnitude of the credit crisis on London shares.

Shares in Europe, the US and Asia have been pummelled by investors since the summer when record mortgage defaults in the US sparked a global credit crisis, which has instilled deep fears over the health of the worldwide economy.

The promotions and demotions were based on what the market value of the firms were at the end of UK trading on Tuesday.

They will take effect on 24 December.

FTSE 100 losers

Northern Rock

Daily Mail & General Trust

DSG International

Tate & Lyle

Punch Taverns

Barratt

Mitchells & Butlers

Source: Based on market value at end of Tuesday

Worst hit

Of the biggest UK shares, Northern Rock has been worst affected by the problems in the financial system.

It was forced to go to the Bank of England for emergency funding after its traditional model of accessing funds from the money markets broke down over the summer.

It is now saddled with a £25bn loan from the Bank of England, underpinned by the taxpayer, and continues to struggle while the government and its directors battle over the best course of action for the stricken bank.

It will sit at the bottom of the FTSE 250 index of medium-sized firms, narrowly avoiding the embarrassment of sinking into the index that tracks small companies.

Changing times

Other firms that tumbled from the FTSE 100 index include newspaper group Daily Mail & General Trust and owner of the Currys chain DSG International, which recently reported a 25% drop in half-year profits.

They are joined by All Bar One owner Mitchells & Butlers and sugar firm Tate & Lyle.

Companies that catapulted from the FTSE 250 into the top 100 include Thomson holiday operator TUI, rival tour operator Thomas Cook and Cairn Energy.

Car insurance group Admiral and security firm G4S also make the grade.

Analysts observe that the last shake-up of the index of this magnitude occurred in September 2001 when eight companies, all technology or telecom firms, were knocked out of the key index after their values shrunk in the technology sell-off.

There were also big changes to the FTSE 250 index of medium sized firms.

Buy-to-let mortgage lender Paragon Group, which has suffered in a similar vein to Northern Rock, will exit the index, as will used car dealer Pendragon.